Protect the business you’ve built and the people you love
Are you a business owner with a business loan? Have you considered what will happen if you pass away earlier than expected? What if you or a key employee experience a failure of health? We never enjoy thinking about these scenarios, but the risk is real and it could create a major problem for your business and/or loved ones if you do not have adequate protection.
It can be difficult to obtain adequate debt financing for a small business. Creditors will often require you (the business owner) to personally guarantee a loan. Your death or the death of another key executive/employee may cause creditors to demand immediate repayment of outstanding business debts.
This can place a significant burden on your business and force the liquidation of key business assets at fire sale prices at a time when business results may already be severely impacted by the death. In addition, if you have personally guaranteed the debts incurred by your business, you or your estate may be liable for any outstanding debts that your business is unable to pay.
If effective planning hasn’t taken place, your business may not survive your death or the death of another key executive/employee. A solution is for your business to purchase an insurance policy on your life and possibly other key executives/employees. Proceeds from the life insurance policy are tax free and may be used to pay down the outstanding business debts.
Creditors occasionally require small business’ to purchase collateral life insurance to protect the creditor’s interests, particularly if the death of the business’s owner could affect the value of business assets used to secure the debt. Even if a collateral assignment is not required, the business owner may still want to ensure that business debts will be fully repaid if he/she passes away, to minimize financial risks for heirs and to permit the business to continue free of debt.
Generally, life insurance premiums paid for business loan protection are not deductible for tax purposes. However, if a life insurance policy has been collaterally assigned to a restricted financial institution, a portion of the premiums may be deductible.
A life insurance policy purchased for business loan protection can help a business negotiate loans and repay business debts with tax-free life insurance proceeds when a business owner or another key executive dies. It can also prevent business owners or their estate from becoming personally liable for the business debts if the owner dies.
As a small business owner, you are the most important asset. Should something happen to you, there are a lot of people who could be impacted. The right insurance coverage can offer the comprehensive protection you need by providing funds to cover business overhead, lost income and medical expenses.
If you have any questions or would like to chat about protecting your business; I would love to sit down with you to uncover your needs, determine how much is enough, and design an insurance plan tailored to your specific business needs. Protecting yourself and your business with insurance does not demonstrate a lack of faith but rather prudent planning.
Ryan Van Niejenhuis
Credential Financial Strategies Inc.
Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal advice. Please speak to your Credential Financial Strategies Representative or personal financial representative before making any financial planning decision or implementing any strategy. Your insurance contract will provide details of the coverage available under the plan you choose. Restrictions may apply.